In the Rs 720-crore domestic designer market — 0.32% of global designer wear industry — not one Indian designer brand is worth Rs 100 crore. To play the bigger game, designers should start concentrating on bottom lines and not just hemlines

Pradeep Hirani is convinced that he's hit upon the fashion business' holy grail: a designer tagged outfit with a $100 price tag.

Hirani, the chairman and MD of Mumbaibased multi-brand fashion retail chain Kimaya Fashions, is certain that his fashion flash — Karmik (a 12-designer tie-up for an ethnic designer ready to wear line) — will revolutionise the Indian fashion industry.

The pret retail model is not new. Raymond did it with Be: in 2000. But Be: became a has-been. Wills Lifestyle, Van Heusen, Reebok, Adidas have done it too.

But Hirani is giving the Indian fashion designer something he has never been able to achieve — economies of scale. The KPMG research commissioned by Kimaya found that a huge vacuum exists in branded Indian womenswear market. At one end are a few mass brands averaging price points of $30 and at the other, designer labels with $400 tags. "A person who drives an Alto will not graduate to a Mercedes," he says. He's here to fill the in-between space. Retailing between Rs 1,500 and Rs 5,000, Karmik will start with 11 stores in nine cities in April 2012.

The turning point for Indian fashion or a way to show the designers how it's done is not important. What is? If Kimaya can do it, what is stopping Indian designers?

Ramping Up

To corporatise or not to corporatise is not the dilemma. 'How' is the real question. Too long they have run as individual ops, too long they have been "glorified tailors". Now to jump into the big league, corporatising is inevitable. Some have started.

Anita Dongre, for example, started corporatising the moment she entered the business almost 20 years ago as she never wanted to run it as her "personal fiefdom". "I applied the 80-20 principle where I only end up doing 20% of managerial work," she says. Today, Dongre's brother runs the business with a CEO, brand managers, merchandisers, buyers and zonal managers in place, and a 5-6 people HR team to man them. She might not have the news value of a Rohit Bal or high-society appeal of a Tarun Tahiliani, but she has 75 standalone stores and 300 shop-in-shop employing 300 people — something no Indian fashion designer can claim to have.

The need to corporatise has hit the old players too. Ritu Kumar, with 36 years in the industry, is going through a major structural change thanks to son Amreesh who took over as director in 2004. "You can't run as a mom-and-pop show any longer," she says. But Amreesh has been fighting his own battles. Catering to a market where the propensity to consume fashion is growing dramatically and trying to professionalise a business till now running on a need-todeliver basis is tough. "It has taken longer than I thought. Certain structural market constraints like quality real estate is something we can't run ahead of," he says. They have 26 stores and some 10 store-in-stores.

According to industry expert Joseph Sam, CEO, Wrap Art & Design, who headed Rohit Bal's efforts to go "professional" in 2004, Ritu Kumar and Anita Dongre today are the two fashion brands who can leverage their business models to attract private equity "as they have professional structures in place and growth roadmaps that are close to emulating international design house labels". Shantanu Mehra of Shantanu & Nikhil fame too had his act together right from the start. They have a corporate structure in place that is horizontally integrated. "Most Indian designers lack the hunger and drive to become globally scalable.

That requires you to nurture certain brands — a tedious process and one fraught with risks," says Mehra.

Slow & Steady

The Indian fashion industry has been called elitist, high-handed and inaccessible.

At the India Fashion Forum panel discussion in 2008 Kishore Biyani, CEO of Future Group had said, "A lot of consumers in many parts of India like wearing safari suits. Wearing them is fashionable for these consumers. Will big fashion houses decide to cater to them?" Probably not.

But fashion — from Mumbai to Milan, New York to New Delhi, Pune to Paris — has always been aspirational. "The idea is to give them the price points which will give them an entry into the market," says Neelesh Hundekari, principal and head, luxury & lifestyle practice at AT Kearney India. Once in, they will fall — hook, line and sinker.

The time is right. A 2012 Assocham report says the designer wear industry in India is likely to cross Rs 11,000 crore by 2020, riding a compounded annual growth rate (CAGR) of about 40%. The domestic designer wear industry is currently valued at about Rs 720 crore. The reasons: higher disposable incomes, emergence of mall culture, changing sense of style, dressing and growing fashion consciousness among urban Indians. Currently, India's share in the global designer wear industry (Rs 2.2 lakh crore) is a mere 0.32%, but is likely to reach 1.7% by 2020.

A 2010 McKinsey report notes that Indian apparel sales are expected to reach an estimated $25 billion this year, having grown in excess of 10% over the past five years — faster than the overall Indian retail market. In India, apparel is the secondlargest retail category (behind food and groceries), representing approximately 10% of the total market.

The report says: "By 2005, 21 million of India's 210 million households earned more than $4,000 a year, qualifying them for membership in what we call 'the consuming class'." Based on the McKinsey research, by 2015, the number of "consuming class households will likely to triple to 64 million".

2000: Joint venture with Zegna Group. Started Giorgio Armani Cosmetics and Armani Casa, a home fashion store. To mark his 25th year opened a $73 million megastore in Milan

The Armani Model

The brand remains privately owned with Giorgio Armani as the only shareholder of the company. Interestingly, Armani has not taken any bank loans either. Yet, it has managed healthy operating profits and ploughed back almost .700 million into the business since 1999

How it Helped

-Being financially independent, the label has been able to test new territories

- No pressures from shareholders

- No day-to-day financial pressures

How it Doesn't

The Giorgio Armani company is a classic case of founders' dilemma. Armani is in his early 70s. However, the company seems not to have made any plans for life after Giorgio Armani

Source: Business Week, Linkedin, Giorgioarmani.com, Various websites

Brand to Company: The Indian Experiment

Ritu Kumar

Started In: 1969 Currently: The grand old lady of Indian fashion, is known for her Indian designs and textile innovations. Son Amreesh Kumar took over as director in 2004. Since then, he has been streamlining processes, establishing organisational structures in place, creating brands and building a retail footprint through self-owned stores and franchises. Owns and operates two production centres in Calcutta & Gurgaon Brands: Ritu Kumar, Label, Ritu Kumar Bridal, Casual Line Stores: 26 selfowned stores in A and B+ cities including Jaipur, Ludhiana, Amritsar Future: Creating their own multi-brand store; already working on the Summer 2013 line

Anita Dongre

Started In: 1992 Currently: With a clear cut idea that she never wants her label to be her "personal fiefdom", Anita Dongre always had her brother manage the business side of the affair. There's a proper corporate hierarchy in place. Merchandisers can actually source from her designs according to what will sell in their stores Brands: Signature labels Anita Dongre Timeless, Anita Iinter Pret and Grassroots (her organic line); she's the creative director for high-street brands AND and Global Desi, runs CLAY Wellness centre in Mumbai Stores: 75 self-owned stores, plus 300 store-in-store Future: Consolidating her stores this year and looking to get more trained staff to add to her 300+ manpower

Satya Paul

Started In: 1987 Currently: Genesis Colors took over the reins of Satya Paul in 2001. The business is managed by trained professionals in the area of retail, supply chain management, manufacturing and design. It has a design studio with more than 40 in-house designers. Such is the resonance of the brand that printed saris have become identified as a Satya Paul signature look Brands: Goes under the umbrella brand of Satya Paul but now offers western wear and woman accessories along with saris and menswear Stores: 31 exclusive boutiques across 15 major Indian cities Future: Focus on ready to wear and accessories; launching a line of pure leather bags soon

Tarun Tahiliani

Started In: 1987 Currently: The designer is busy professionalising the management to enable the business to scale up. The brand operates in several other verticals like design, architecture and events. Currently, they have a board of directors with outside members like Gautam Thapar of Avantha Group and Sanjay Labroo of Asahi India, plus a COO Brands: Under "The Tarun Tahiliani Design Studio" manage Tarun Tahiliani Couture & Tarun Tahiliani; tie-ups with Ferns & Petals and Timex Stores: 4 exclusive stores, eight multibrand stores; also available in London, New york and Tokyo Future: Opening three big stores in 2012 in Delhi, Gurgaon & Hyderabad

Shantanu & Nikhil

Started In: 2000 Currently: The duo started S&N Drape — their diffusion brand — a couple of years ago keeping in mind that they want to scale up in the coming years. The company has a lean corporate structure in place that is horizontally integrated for better communication Brands: Shantanu & Nikhil mother brand, S&N Drape, S&N for adidas, S&N Co. — design consultancy and products & accessories brand catering to the corporate side like Reliance, Mumbai Indians Stores: 3 flagship stores, tie-ups with stores in West Asian countries and stores like Kimaya in India Future: Stopped making bridal lehengas and saris. Only few special appointment clients are given lehenga options

Designers lament the lack of a market, but Hundekari says, "It's more a supply-side constraint than demand side. How do you explain designer brands selling like hot cakes on sale." The supply side constraint, he explains, is the availability of "bridge or ladder" brands/products between luxury and premium.

The PE Question

Ashish Soni, who completed 20 years recently in the industry, has a five-year plan to scale up. His idea: a 30-store network — he currently has two — in the next five years. For this, he has kept his manufacturing side lean with only 30% of the manufacturing centralised and the rest outsourced.

This follows the atelier structure of fashion houses abroad; Soni says a centralised factory weighs you down. What Soni now needs is private equity. But he claims that PE funds are not interested and going the other way would mean dumb money. "There are no examples to follow. PE funds are scared as they are waiting for who goes first," he says. His bet: an international fund from overseas will take the lead.

Soni might be on track as rumour has it that L Capital, the private equity arm of LVMH, has been scoping out established fashion designers in India, the strongest rumour being in favour of Sabyasachi Mukherjee.

The PE company has already picked up stakes in Genesis Colors that manages Satya Paul among others and FabIndia. Hundekari says the problem of PE funding in fashion in India is not interest but the size. "There are very few fashion brands beyond the Rs 100 crore mark. It doesn't even meet the minimum size for PE," he says, and adds, "All funds are interested in the consumer/retail sector given the increased discretionary spending. Fabindia, Genesis, Kimaya are examples of investments happening when the fund believes that the business model is sustainable and capital can hasten growth."

As designer Ravi Bajaj, who after 25 years in the industry has two stores, says, "The sum is a too large for your uncle to invest and too small for a PE or a venture capitalist." Satya Paul is one of the first Indian designer brand to get private equity with three investors currently. "Satya Paul as a brand epitomises how a designer brand can be corporatised and is a case study in itself," says Jyoti Narula, managing director of Genesis Colors.

Wardrobe Malfunction

The industry, according to Bajaj, is stuck in a catch-22 situation. He says that Indians as consumers are not brand loyal. "It's the one place you see an Audi, BMW and Merc outside a house." But the problem, he admits is two-way. "We [as designers] don't create brands they can be loyal to and they don't want to be loyal to one brand. Maybe it's a market that deserves each other."

Marketing and strategy expert Harish Bijoor agrees. "They lack any sort of brand high ground. Even Bangladeshi designer Bibi Russell has more of a global footprint because she stuck to her idea of ethnic and ecofriendly designs — two ideas that have global resonance and scalability," he says. World over, Armani is effortless chic, Versace typifies go-getter spirit.

"Probably Manish Arora is the most licensable designer today — as he has created a niche for a certain genre of design that is unconventional. Genesis Colors has managed to build 'Satya Paul' into a uniquely placed brand and can leverage the print story innovatively into other categories," Sam says. "But too much depends on one person, making it a high-risk investment," Bajaj says. As an industry insider quips: "The banks are ready to fund, but they will not fund a lifestyle."

The Wedding Blues

In 2011, Sabyasachi Mukherjee observed, "Till Indian designers do bridal wear, they'll never feel the pinch of recession." And the man speaks from experience. His 2010 collection at the Delhi Couture Week — in India couture is wedding wear — did a business of Rs 1 crore in one day.

With almost 100% profits, not many can resist the temptation. So much so, designers who never did wedding wear like Gaurav Gupta and Varun Bahl have started now. Industry insiders say that there's an aversion to booking the revenue. In a market where 70% of the designer's revenue comes from bridal wear, most transactions are cash based.

But a few brave ones are venturing out, although tentatively. Shantanu & Nikhil have decided to wrap up their lehengas and saris division. "The competition is too high and extremely mature in the segment," Mehra says. Contemporary gowns and jacket skirts are their idea of bridal range. Similarly, Soni has moved away. "It's only three months a year. To scale up we need to look beyond." One small step for them, one giant leap for the business.